Court's focus on deterrence in Firstmac case: a crucial reminder for financial product distributors

The recent judgment in Australian Securities and Investments Commission v Firstmac Limited (Penalty Hearing) [2025] FCA 12 marks ASIC's first civil penalty proceedings against a distributor for breaches of the design and distribution obligation (DDO) and the first case that the court has ruled on the reasonable steps obligation. The outcome of this case highlighted the court's emphasis on deterrence and public interest, reflected in the quantum of the penalty imposed. This case serves as a caution for financial product issuers and distributors to maintain compliance with DDO, particularly in mitigating the risk of unsuitable product distribution. In this article we'll summarise the case and delve into the key legal precedents established by the judgment.

Firstmac's issuance of High Livez

The Firstmac case addressed the quantum dispute relating to the contentious civil penalty that arose from the judgment on liability, Australian Securities and Investments Commission v Firstmac Limited [2024] FCA 737.

ASIC's case centred on Firstmac's issuance of High Livez, which is a managed investment scheme that aims to provide income returns by investing in asset-backed securities and similar financial instruments. Firstmac used a cross-selling strategy to market High Livez, primarily to existing term deposit customers. This included sending automated marketing emails to term deposit holders encouraging them to invest in High Livez, positioning High Livez as an alternative to term deposits (despite the fundamentally different risk profile) and using pre-filled application forms, making it easy for customers to switch without a detailed suitability assessment.

High Livez was considered a higher risk product as it did not have a capital guarantee nor an investment term recommendation longer than two years. In particular, the Court noted that the Firstmac term deposits were well-known and low-risk with the added security of capital guarantee by the Australian Government up to $250,000. In contrast, investments in High Livez were not capital guaranteed, and the unit price was subject to market volatility, meaning investors could experience both gains and losses on their capital.

The court ruled that Firstmac failed to take reasonable steps to ensure that High Livez was distributed in accordance with its TMD. It held that Firstmac’s conduct was reckless, as it knew or should have known that term deposit customers were unlikely to fit the target market for High Livez. Furthermore, it contended Firstmac did not have adequate systems, policies, practices and procedures to address identified or reasonably identifiable risks of retail product conduct which was inconsistent with the TMD.  This included deficiencies in the automated marketing approach failing to account for the different risk tolerance of term deposit customers, the lack of direct consumer engagement to assess suitability and the absence of a filtering process to prevent unsuitable customers from receiving promotional material.

Judgment and penalties

Despite Firstmac engaging in a total of 831 contraventions by distributing the High Livez PDS outside the TMD, only one term deposit holder who invested in the product suffered a financial loss. The investor incurred a small loss of $184.71 on a $50,000 investment, which equates to a 0.37% decrease from the original investment. Firstmac also only received payment of $150 in management fees from this investment.

Despite the relatively low financial harm caused, the court held that Firstmac should pay $8 million in penalties. In reaching this decision, the court applied the principles in section 1317G(6) and relevant High Court precedents to determine that penalties do not need to be proportionate to the level of harm caused to customers. Justice Downes found that the conduct of distributing High Livez PDS to a person outside of the TMD was objectively reckless. The civil penalty was imposed to deter similar misconduct by issuers and distributors and to uphold the public interest in ensuring compliance with design and distribution laws.

Key takeaways for issuers and distributors

• Ensure products are only marketed to consumers which fall within the target market.
• Cross-selling must be carefully managed, for example, cross-selling strategies must align with the risk profile and investment objectives of the target market.
• Broad, automated marketing campaigns do not meet the "reasonable steps" threshold under the DDO regime.
• The severity of a penalty is not necessarily linked to the level of financial harm caused to consumers and the court can impose penalties which serve a deterrent purpose.
• ASIC is willing to take enforcement action for breaches of the DDO regime, even where financial losses to consumers are minimal.

Please contact our Financial Services team who can assist in reviewing compliance with your regulatory obligations.